NEA to scrap accord if CTGC keeps stalling West Seti Hydro Project

NEA to scrap accord if CTGC keeps stalling West Seti Hydro Project

- BIBEK SUBEDI, Kathmandu

Jun 27, 2017-

The Nepal Electricity Authority (NEA) has been mulling to terminate the contract with China Three Gorges Corporation (CTGC) as it has been putting off establishing a joint venture company to construct the West Seti hydro project in far west Nepal. “It seems like the Chinese developer is not interested in developing the project at all,” said a highly placed source at the NEA. “We will soon write Investment Board Nepal (IBN) and the Energy Ministry and ask them to initiate the process to terminate the contract with CTGC.”As per the memorandum of understanding (MoU) signed between the government and CTGC, it was supposed to form a joint venture company with the NEA to develop the project.

Last January, both parties initialled a joint venture agreement which had to be ratified by their respective boards. The NEA board immediately approved the agreement, but the Chinese company has been dillydallying putting forth new demands again and again. Most recently, CTGC requested clarification on the tariff structure of the multi-purpose project. On June 5, it sent a letter to IBN asking about the tariff rate it would get from the power purchaser if the project is developed as a multipurpose project. IBN is preparing to write back to the Chinese developer after consulting with the NEA and the Energy Ministry.

The newly published power purchase agreement (PPA) guideline has clearly mentioned different types of tariff rates for different types of projects; but for multipurpose projects, it says that the tariff rate will be fixed by negotiation. “We are planning to reply to the Chinese developer one last time,” said the IBN source seeking anonymity. “If they don’t ratify the initial joint venture agreement after this reply, we will initiate the process of terminating the contract with the Chinese developer. We will send another letter with a deadline to endorse the joint venture deal and incorporate the joint venture company. If they miss the deadline, the contract will be terminated.” Earlier, the Chinese company had written to the NEA asking it if it could assure a corporate guarantee from a second party or the authority itself for a loan for the project.

The NEA replied that it did not need a guarantor to borrow money to implement the scheme. The state-owned power utility said that no corporate guarantee was required to secure the loan as the project itself would be pledged as collateral. Last April, CTGC had asked the NEA to clarify several issues before it ratifies the agreement signed between the two. At that time, the Chinese company had sought assurance from the NEA regarding the purchase of the electricity generated by the 750 MW project. Then too, it had asked about the tariff structure. Similarly, the Chinese developer had expressed concern about the NEA’s financial health, and asked if it would be able to arrange equity financing for the portion of the total funding not covered by loans. Every time the Chinese developer has put a question about the project, a proper answer has been given; but it has not ratified the pact, raising doubts if it really wants to develop the project, officials said. The reservoir-type West Seti project, which will straddle Baitadi, Bajhang, Dadeldhura and Doti districts, is expected to cost $1.6 billion.